The engineer of Reaganomics comes to Ukraine: What now?

The engineer of Reaganomics comes to Ukraine: what should we expect? The regime of Pinochet in Chile gives us some clues …

People not only in “independent” Ukraine, but around the world laugh at the outright impotence of the current regime, which is not capable of managing the country. A few days ago a new figure was added to the large group of “foreign Ukrainians”, who in fact, are running the country. Now an American economist Arthur Laffer has been appointed as an advisor to the ex-American Minister of Finance of Ukraine Natalie Ann Yaresko. What can we expect from him?

Author of the theory of “supply-side economics” will oversee Ukraine’s taxation. In his days “the newly appointed Ukrainian” was economic advisor to the US President Ronald Reagan and the British Prime Minister Margaret Thatcher. This news requires time for serious reflection. But something can be said now.

People are already making jokes about the foreigners in Ukraine: 1. Saakashvili is frolicking in Odessa; 2. Abromavic has saddled the trade; 3. Kvitashvili promises European medical treatment for everyone; 4. Natalie Ann Yaresko counts Ukrainian money … And now Laffer is beginning to collect Ukraine’s taxes.

Arthur Betz Laffer is an interesting person. He was born on August 14, 1940 in Youngstown, Ohio. Laffer earned a B.A. in Economics from Yale University (1962) and an M.B.A. (1965) and a Ph.D. in Economics (1971) from Stanford University. In 1971 he became a Doctor of Philosophy with a degree in “economics”. Until mid-1980s he worked as a tenured professor of the Graduate School of Business at the University of Chicago and the Marshall School of Business. In 2008, he was named a Distinguished University Professor of Economics by Mercer University in Georgia. Laffer became well known during the reign of Reagan, when he became a member of the presidential council on economic policy.

His name is associated with, a very sad for ordinary Americans, era of Reaganomics – an economic policy of the American government based on constant “credit stimulation”, reduction of social expenditures (they increased significantly only in the defense industry) and taxes, reduction of the state influence on the economy and deregulation of financial markets.

All this led to serious problems. In seven years the National debt of the United States tripled, soaring to 2.8 trillion dollars. Social stratification increased dramatically during the Reagan era. The number of Americans living below the poverty line increased to nearly 32 million. Homeless became a real scourge in the major cities …

The theory of Milton Friedman of the University of Chicago, revered by the current advisor to the Minister of Finance of Ukraine, brought a lot of troubles to many countries. An example of what can result from realization of this theory into practice is the situation in Chile, when in 1973 President Salvador Allende was overthrown with the help of the CIA and dictator General Pinochet came to power.

In order to “reform” the country’s economy Pinochet summoned the so called “Chicago boys” from the United States – 30 Chileans who studied economics at the University of Chicago, in which Laffer was playing an important role and who developed a “special program”. What came of it?

At first, they managed to lowered inflation and at the same time caused a rise in unemployment from 9.1 to 18.7 percent. In just one year (from 1974 to 1975) the GDP of Chile fell by 12.9 per cent. It was the most severe since the 30s depression in the country. In 1976 there was a slight increase in economic indicators, which was called the “Chilean economic miracle”. But the final result turned out to be a grim one. The economy of once prosperous country still cannot overcome the effects of this “miracle.”

From 1973 to 1987 the main indicator of living standards (GDP per capita) in Chile fell by 6.4 percent. People became totally impoverished. An average worker in 1989 was living worse than in 1970. Half of the population was below the poverty line and one third of Chileans were in a desperate situation. The UN began to speak openly about the humanitarian catastrophe.

Around Santiago and other large cities mega slums sprung up. They were the camps of the hungry. Life in them was maintained only due to free soup kitchens organized by international volunteers. By 1988, the number of Chileans who did not have permanent housing had grown from 27 to 40 percent. There was an enormous income inequality between the rich and the poor. Representatives of seventy-nine richest households were receiving nearly 47 percent of the national income! ..

In Ukraine the situation for 75-year-old American is a convenient one. In 24 years of independence the country has developed an oligarchic economy, in which several dozen families own 86 percent of the national wealth. There are horizontal ties, logistics, methods of budget’s milking, embezzlement, fusion of big business and power. Everything seems to be good, but the taxation is a mess. At the request of the Ukrainian government Laffer has come to the country to “restore order” and “to harmonize the situation” in this field.

The Ukrainian oligarchic authorities (that is the proper name to call them, because even the president is an oligarch) have no motivation to improve the lives of ordinary citizens. They are interested only in their own well-being. Hence the merger of the state and big business. This is the true cause of the corrupt nature of Ukraine’s economy. The tax system of Ukraine is working to preserve the budgetary trough in the interests of domestic billionaires and transnational profiteers.

However, sometimes the system experiences malfunctions with subsequent unrest, strikes, demonstrations, Maidan. It seems so that Laffer was invited to Kiev to repair the already functioning mechanism for robbing the people, including by international financial corporations. It is impossible to expect something different from the engineer of Reaganomics.